Urban Land Institute, a Washington D.C. think tank reported yesterday in its “Emerging Trends in Real Estate 2010” report that there may be problems ahead for Sacramento real estate market.

Jonathan Miller, a consultant for PricewaterhouseCoopers who wrote the report,said ”On balance here, I guess it’s a sober year for 2010 and maybe not much better in 2011,” in a telephone news conference from the convention. “It all depends on how the economy behaves and if the consumer comes back. We don’t expect much of a resurgence.”

In the report, Sacramento was described as less favorable because of “concerns about government gridlock, rising taxes and an inhospitable business climate”.

The shadow inventory that people have been talking about for so long… I have lost buyers (who just got so lethergic and wishy-washy and finally decided waiting was better than buying) because of the fear that somehow a spigot of homes was going to be turned on and flood the market, driving real estate prices even lower here in the Sacramento area…

Now we are finding that maybe it has been a misnomer all along….

According to Sean O’Toole, and Foreclosuretruth; the Foreclosureradar.com blog: There is currently no shadow inventory of bank-owned (REO) properties. What’s more, a surge in REO properties (the Tsunami) is not likely anytime soon.

If this sounds familiar, it’s because I’ve said it before, here and here and other places. However, it still seems to be news (see the recent WSJ article) and despite the fact that the most recent CA Foreclosure Report from ForeclosureRadar.com runs the numbers, some still insist the shadow is there.

First, let’s be clear about what shadow inventory is. These are homes that the bank has already foreclosed on, but which, for no apparent reason, aren’t listed. The implication is that banks are holding REO properties back from the market to restrict supply and prop up prices. This actually seemed like a distinct possibility a year ago when the banks were clearly holding more inventory than they were listing. But that is no longer the case. In the past year, they have resold far more than they’ve taken back, eliminating any possibility that a shadow remains.

Some observers, who earlier this year warned that this shadow inventory would deluge the market with REO listings, have now redefined shadow inventory to include properties that should be foreclosed on. They continue with misguided warnings of a deluge of REO listings any moment now.

Not so. These properties are not lurking in the shadows at all. We know exactly which properties are in trouble and where they are in the process. Using ForeclosureRadar.com you can easily see every potential REO listing, from Notice of Default to Notice of Trustee Sale, for the next six to nine months. In addition, even if banks reversed course and started foreclosing aggressively today, it would be months before we saw those listings as it takes time to evict the homeowner, clean up and list the property.

What’s more, they’re not going anywhere. These properties aren’t grinding through the pipeline to foreclosure and into the shadow inventory. They’re not moving at all because we as a society lack the political will to foreclose. Because the national focus is targeted on keeping homeowners in their homes, the drain is bigger than the spigot – REO properties are selling faster than distressed properties are being foreclosed on.

As a result, the pendulum has swung to the other side. Instead of a glut of properties hitting the market, as so many have warned, we currently don’t have enough inventory for those who want to buy homes, and homeowners are still in trouble because the so-called solutions (foreclosure moratoriums, loan modification, refinancing) don’t fix the real problem, which is negative equity.

No more conspiracy theories. We need to abandon the obsession with shadow inventory, which distracts us from the national discussion we should be having. With the current lack of inventory, its time to force banks to clean up their balance sheets by dealing head-on with the trillions in negative equity that remains, either though loan modifications that reduce principal balances to near current value, short sale, or, if necessary foreclosure. These are the only solutions that deal with the core problem of negative equity. It’s time for “extend and pretend” to end.

About Sean O’Toole

Sean is the founder of ForeclosureRadar.com, the only company that tracks every foreclosure in California with daily updates on all foreclosure auctions. Prior to ForeclosureRadar Sean spent 15 years building and launching software companies before entering the foreclosure business in 2002 where he has successfully bought and sold more than 150 foreclosure properties.

Came across this article in DSNews this morning and thought I’d re-post it…

Bank failures continue to mount, even as the U.S. economy is beginning to show signs of improvement. Regulators on Friday shut down five more institutions – in California, Georgia, Michigan, Minnesota, and Missouri.

These latest closures bring the total number of FDIC-insured failures to 120 for the year so far – the most in a single year since the savings & loan crisis of the last decade. By comparison, 25 U.S. banks were seized by officials in 2008, and only three went under in 2007.

On Friday evening, the FDIC stepped in to help shut down San Francisco-based United Commercial Bank (UCB), the largest institution to be closed last week, whose failure is expected to cost the agency and estimated $1.4 billion. Last year, the Treasury gave $299 million in Troubled Asset Relief Program (TARP) funds to UCB’s holding company. Based on the Department’s most recent TARP transaction report, UCBH Holdings, Inc. has not yet repaid any of the capital injection and it is unclear how the investment of taxpayer dollars will be affected by the collapse.

The FDIC facilitated a deal with East West Bancorp, Inc., the parent company of East West Bank in Pasadena, California, to acquire all the banking operations of UCB. Under the terms of the transaction, East West will receive $10.4 billion in assets, including $7.7 billion in loans, and assume $9.2 billion in liabilities, including $6.5 billion in deposits of UCB. The FDIC and East West have entered into a loss sharing agreement covering substantially all acquired loans.

East West’s presence is concentrated in California, but it also operates several banking offices in Greater China. The Shanghai, China, subsidiary of United Commercial (UCB-China), and a Hong Kong branch of UCB were also part of Friday’s transaction. According to East West, its acquisition of UCB creates the second largest independent bank headquartered in California and the largest bank in the United States focused on serving the Asian American community.

The San Francisco Business Times reported that UCB fell under the weight of its construction loan portfolio. Thomas Wu, UCB’s former chairman, president, and CEO who stepped down just two months ago, told the paper earlier this year, “We’ve been doing construction lending for 20 years, but we’ve never experienced anything like what we have in the last 12 months. It’s unprecedented.”

United Security Bank headquartered in Sparta, Georgia, was also closed Friday. Ameris Bank of Moultrie, Georgia agreed take over United Security’s $150 million in deposits, $157 million in assets, and its two branch offices, including the branch in Woodstock, Georgia that operated as the Bank of Woodstock. The failure is expected to cost the FDIC $58 million. With United Security, 21 Georgia banks have failed this year, more than in any other state.

Home Federal Savings Bank in Detroit, Michigan, was shut down by the Office of Thrift Supervision. The FDIC brokered a deal with Liberty Bank and Trust Company of New Orleans, Louisiana to acquire all of the $12.8 million in deposits of Home Federal Savings Bank, its $14.9 million in assets, and its two branches. The closure will cost the FDIC an estimated $5.4 million.

Prosperan Bank in Oakdale, Minnesota was also seized by regulators. In a deal facilitated by the FDIC, Alerus Financial, N.A. of Grand Forks, North Dakota agreed to take over operations of Prosperan’s three branches, as well as assume $175.6 million in deposits and purchase $173.9 million of the failed bank’s assets. The FDIC expects Prosperan’s collapse to cost its deposit insurance fund $60.1 million.

Gateway Bank of St. Louis in Missouri was taken over by Central Bank of Kansas City. Gateway Bank had only one branch office, total assets of $27.7 million, and total deposits of approximately $27.9 million. Gateway Bank’s failure is expected to cost the FDIC’s insurance fund $9.2 million.

Federal lawmakers last week chastised the nation’s banking regulators for coming down too hard on smaller community banks, such as those shut down last week.

As DSNews.com reported Thursday, House Financial Services Committee Chairman Barney Frank (D-Massachusetts) accused regulatory agencies of punishing the wrong institutions for the financial crisis. He called their stringent oversight of small community banks – which he says are trying to respond to the government’s call to resume lending – an “overreaction” that could easily exacerbate the credit crisis.

Fannie Mae reported that the serious delinquency rate for conventional loans in its single-family guarantee business increased to 4.17 percent in July, up from 3.94 percent in June – and up from 1.45% in July 2008.

“Includes seriously delinquent conventional single-family loans as a percent of the total number of conventional single-family loans. These rates are based on conventional single-family mortgage loans and exclude reverse mortgages and non-Fannie Mae mortgage securities held in our portfolio.”

Just more evidence of some shadow inventory and the next wave of foreclosures.

Update: These stats include loans in trial modifications.

Than today from Chris Mcglaughlin;

According a report from California-based real estate market consulting firm Foresight Analytics, total delinquencies for first-lien residential mortgages grew to an estimated 11% during Q309. The final figures for the third quarter are not due until the end of November, but Foresight’s report bases its data on earnings reports and call report filings from banks. Residential delinquencies increased from 10.2% in Q209 and from 6.4% from the second quarter of 2008, according to the report. The delinquency rate rose approximately 1% every quarter since the Q108, except for a quick blip in Q408. “We have been expecting the rate of increase to slow, but clearly this has not yet occurred,” said the report.

Nonaccrual rates for residential mortgages also jumped to 4.7% in Q309 from 3.8% in the previous quarter, and delinquencies in commercial mortgages also ballooned for the quarter. The rate hiked to 4.7% in Q309 from 4.1% in the previous quarter and more than doubled the 2.1% rate a year ago, according to the report. “The delinquency rate has been increasing at an accelerated rate since Lehman Brothers’ collapse in September 2008 and the ensuing severe credit crunch and economic downturn.” The delinquency rate in commercial loans is still well below the 8% delinquency rate in the third quarter of 1991, but the rate still worries analysts in light of a weak economy, constricted credit availability and a large number of commercial mortgages coming due the next few years.

LATIMES: A national housing nonprofit has launched an education campaign in Southern California to combat scams targeting homeowners in peril of foreclosure.

Loan modification fraud is on the rise, costing troubled homeowners thousands of dollars up front for mediation and counseling services that are provided free by federally approved nonprofits, Eileen Fitzgerald, chief operating officer of NeighborWorks America, said Monday at a news conference on the steps of Los Angeles City Hall.

Washington-based NeighborWorks is starting its yearlong national education effort in Southern California because the region has been hit particularly hard by the foreclosure crisis, she said.

Troubled borrowers often pay fees ranging from $1,500 to $3,000 for help in reducing their mortgage payments, Fitzgerald said. The companies, in turn, promise to negotiate with their lenders on their behalf. In some cases the companies promise that loan amounts will be modified, a result that is difficult and rare, she said.

In addition to money paid to unscrupulous companies, those facing foreclosure can lose precious months that could be better spent with federally approved nonprofit counselors who don’t charge for their services, Fitzgerald said.

Poorly informed homeowners desperate for help turn to loan modification consultants — who often are attorneys, mortgage brokers or real estate agents — advertising on radio and television and in print.

“They are very good marketers,” Fitzgerald said.

California Atty. Gen. Jerry Brown’s office has reported receiving more than 2,500 complaints against loan modification consultants and businesses through Oct. 14 of this year, up from 163 in all of 2008.

Seniors, Latinos, African Americans and Asian Americans have been particularly victimized and will be a focus of the education campaign, Fitzgerald said.

For the next three weeks, community organizers and volunteers with NeighborWorks and its local affiliate, Los Angeles Neighborhood Housing Services, will be distributing marketing materials to warn people about loan modification fraud. The first stop Monday was the WorkSource center in Sun Valley.

“Many of these families believe they have nowhere to turn, nowhere to go for help or assistance,” Los Angeles Mayor Antonio Villaraigosa said at the news conference.

In April, the Los Angeles City Council passed an ordinance imposing penalties on companies that charge for such services.

Zulma Navarrete said that over the last year she had bad experiences with two loan modification companies.

The 36-year-old native of Guatemala, speaking in Spanish at the news conference, said the first company charged her about $2,000, and the second, a law firm, charged her $3,495. Neither has persuaded the lender to reduce the $2,900 monthly payment on her three-bedroom Huntington Park home.

Navarrete said she got her money back from the first company but not from the law firm.

Bank of America (BOA) announced today that it suffered a $2.2 billion loss in the third-quarter quarter. Contributing to that was a $1.2 billion dividend payment to its preferred shareholders, including the U.S. government, credit losses within some of its consumer-related businesses, and $402 million after it agreed to eliminate a loss-sharing agreement it had struck with the government earlier this year. “Obviously, credit costs remain high, and that is our major financial challenge going forward.” Most of this quarter’s losses were in Bank of America’s mortgage and credit card businesses, which together lost more than $1 billion during the July-September period.

BOA funded $95.7 billion in first mortgages, selling purchase or refinance loans to nearly 450,000 borrowers, including $23.3bn in mortgages to 154,000 low- and moderate-income borrowers during the quarter. About 39% of all the first mortgages were for purchases. Year-to-date at the end of Q309, BOA modified the mortgages of approximately 215,000 customers, and an additional 98,000 BOA mortgage customers are in the trial stage of a Making Home Affordable Modification Program (HAMP) workout. The overall results were slightly worse than Wall Street was expecting. Analysts had anticipated that the company would suffer a loss of 21 cents a share, according to Thomson Reuters, but in fact lost 26 cents a share.

Foreclosures up

Since government intervention began in September 2008, foreclosure sales remain stunted, dropping 8.6% from the previous month and 40.6% from a year ago. But the percentage of foreclosures sold to third parties, who are usually investors, grew by 215% from last year and 3.27% from August, according to ForeclosureRadar’s monthly foreclosure report. Arizona leads all states with an increase of filings by 36.1% in September, followed by Florida (29.6%), Texas (24.3%), and Michigan (18.22%). Filings in California increased only 1.08% in September, but the volume has grown by 123% from last year.

Urban areas were hit hardest and spurred the increases. In Arizona, the statewide increase was fueled by a massive 81.3% increase in Phoenix foreclosures. Foreclosures in Las Vegas jumped 47.4%; Atlanta had a 39.9% increase; Chicago’s rates climbed 36.2%; and Houston had a 33.2% spike in foreclosures, according to ForeclosureListings.com. RealtyTrac says foreclosure filings in Q309 increased to a level unseen since it began reporting the figures in January of 2005.

Perspective: More convinced of ‘W’-shaped recovery

While both the media and stock investors believe that housing has bottomed, they are unaware of the massive supply of homes that are already in the foreclosure process that will certainly drive home prices down even further when they are sold. We have been projecting a “W”-shaped recovery for some time, and we are becoming even more convinced that we are right. The shape of the second leg down is almost completely dependent on the level of government intervention that will take place.

For a number of reasons, banks have not been aggressively taking title to homes and selling them, which has resulted in very few distressed sales in comparison to the actual level of distress in the market. This delay in bank-owned home (REO) sales, along with historically low mortgage rates and an $8,000 tax credit, has helped to stabilize the housing market — temporarily.

It is very clear that price stabilization is temporary unless something is done. Here are some facts to help project what housing will be like in 2010:

13.54 percent of the 44.7 million mortgages tracked by the Mortgage Bankers Association are delinquent.

7.57 million homeowners are delinquent, applying the same percentage to the 11.2 million mortgages not tracked by the MBA (55.9 million total mortgages in the U.S.). That means that 10 percent of all homeowners in the country are delinquent.

Based on historical trend analysis by Amherst Securities, 6.94 million homes that are already delinquent will be liquidated, which is more than a one-year supply of distressed sales poised to hit the market sometime in 2010 and 2011. During first-quarter 2005 that figure was only 1.27 million.

Defaults continue to grow at the rate of approximately 300,000 per month, assuring that the number of distressed sales will grow and will continue through 2012.

2009 government intervention

Government intervention to date has been extremely helpful in preventing an even more dramatic decline in home prices. As shown in the chart below, housing demand has fallen only to “normal” levels and stabilized there. Without historically low mortgage rates, support for Freddie Mac, Fannie Mae and FHA, and an $8,000 tax credit, how far would sales have fallen this year and what would that decline in demand have done to pricing?

Conclusion

Demand needs to continue to be stimulated to bring down supply, particularly while the country continues to lose jobs. Without continued government intervention, home prices will plummet, banks and the government-sponsored entities (GSEs) will continue to lose money, and the economy has virtually no chance of increasing overall employment in 2010.

Our grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.” In this grading system, it is OK to be a “C” student.

Here is our current report card:

Economic Growth: DEconomic growth deteriorated in September as the economy remained very weak. Annual job losses continued, marking one of the worst losses in 60 years. The headline unemployment rate increased to 9.8 percent last month, after reaching 9.7 percent in August. Mass layoff events — defined as a cut of 50 or more jobs from a single employer — also increased this month, and are up nearly 43 percent year-over-year. Currently, it takes job seekers twice the normal length of time to find employment.

The Consumer Price Index, or CPI (all items), decreased at a slower rate in August, recording a decline of 1.5 percent, while the core CPI (minus food and energy) showed an increase of 1.4 percent.

The final second-quarter gross domestic product (GDP) growth rate is at -0.7 percent, which is a significant improvement from the -6.4 percent decline in the first quarter.

Leading Indicators: C-Many leading indicators continue to improve, and suggest that the worst of the recession is behind us. The Leading Economic Index six-month growth rate rose in August to its highest level since early 2004. The ECRI Leading Index — an indicator of future U.S. growth — has increased almost 21 percent since the beginning of the year — the largest growth rate since 1971. Stocks continued to rise through September and the four major indices now range from -10 percent to up 2 percent year-over-year. The Standad & Poor’s Homebuilding Index rose in August, increasing 14 percent from the previous month, but remains down 5 percent year-over-year and down 72 percent from its peak in July 2005.

The Net Employment Outlook turned negative for only the second time in the 20-year history of the index (the first was last quarter), as more employers that were surveyed foresaw staff levels decreasing than increasing. The average hours worked per week by Americans declined slightly in September, reaching its lowest levels on record, partly due to furloughs forced upon both government and private sector employees.

The price of crude oil declined to a monthly average of $69.46 per barrel in September, representing a 2 percent month-over-month decline.

Affordability: C-Affordability improved in September as both mortgage rates and the median resale price fell compared to August. Currently, our housing-cost-to-income ratio has fallen to 26.7 percent, which is near the lowest level since we began calculating the index in 1981. Due to the correction in home prices and low mortgage rates, owning a home is now essentially the same cost as renting, making it favorable for first-time homebuyers to purchase a home. Household income has fallen 6 percent year-over-year to $52,856 as a result of job losses and furloughs. Despite the decline, the median-home-price-to-income ratio has fallen to 3.3, which is now equal to the historical average.

The 30-year fixed mortgage rate fell again in September, reaching 5.04 percent by month-end, while adjustable mortgage rates reached 4.52 percent at September month-end. The Fed’s overnight lending target rate remains at a range of 0 percent to 0.25 percent, which is the lowest level on record. The share of adjustable-rate mortgage (ARM) applications increased to 5.6 percent in the last week of August, according to the Mortgage Bankers Association. However, the share of ARM applications remains extremely low when compared to peak levels above 35 percent of total applications in early 2005.

Consumer Behavior: D-Consumer behavior was mixed in September. Consumer confidence declined after increasing in August, falling to 53 — far below the historical average of 97. Consumer sentiment increased in September to 73.5, reaching its highest level since January 2008. The Consumer Comfort Index also increased in August to -46.4. The personal savings rate has fallen in the last two months after spiking at 6.9 percent in May.

The U.S. net worth increased by nearly $2 trillion in the second quarter compared to the first quarter. This represents the first increase in net worth in almost two years, and is largely due to recent large gains experienced in the stock market. Despite the recent improvement, the second quarter year-over-year decline is the third worst on record in the 50-year history of this data point, losing $7.4 trillion of wealth in the past year. Both unemployment and inflation increased in September, resulting in a rising Misery Index (the sum of the two rates).

Existing-Home Market: D+The existing-home market remains weak yet seems to be stabilizing. Seasonally adjusted annual resale activity in August declined almost 3 percent from July to 5.1 million homes, an improvement of 3 percent compared to one year ago, according to the National Association of Realtors (NAR). The rolling 12-month count of resale sales activity has increased for the second month in a row. The national median resale price fell to $177,500, and has declined 12 percent year-over-year. Weak consumer confidence and increased foreclosure sales continue to put downward pressure on resale prices.

The S&P/Case-Shiller index, which tracks paired sales, fell 15 percent in the second quarter of 2009 compared to second-quarter 2008. In August, the number of unsold homes declined sharply to 8.5 months of supply yet remains elevated compared to history.

As of the second quarter, 32 percent of all homes with a mortgage were worth less than the original value of the mortgage.

New-Home Market: DA few components of the new-home market improved in September. Builder confidence increased last month to a Housing Market Index rating of 19 — the third consecutive month of an increasing index. The inventory of unsold homes continued to improve and has fallen to 7.3 months of supply. Seasonally adjusted new-home sales are down 3 percent year-over-year and are down 69 percent from a peak of nearly 1.4 million annual sales in July 2005.

The rolling 12-month count of new-home sales was flat compared to last month — the first time since 2005 it hasn’t declined from the previous month. The median single-family new-home price dropped sharply to $195,200 in August from July’s $215,600 median — representing an 11.7 percent year-over-year decline.

Housing Supply: FSeasonally adjusted total permits increased to 579,000 as a result of a large jump in multifamily permits, while single-family permits declined slightly. Seasonally adjusted total new-home starts decreased in August to 479,000, due to a 3 percent drop in single-family starts, and are down 22 percent from one year ago.

John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis. He can be reached at [email protected].

The housing crash is about to come back with a vengeance, as 7 million new foreclosure properties are about to hit the market, analysts at Amherst Securities Group LP said this week.

The New York-based mortgage-bond analysts called that number – which is about five-and-a-half times larger than 2005’s national tally of delinquencies and foreclosures – a “huge shadow inventory” that threatens to further destabilize a housing market that had shown signs of righting itself over the summer.

Despite some recent optimism, many market observers now agree on several factors that are expanding the nation’s shadow inventory. Loan modifications, legal wrangling, redefaults and bank practices have delayed foreclosures while actually worsening many homeowners’ positions.

As a result, the analysts say a so-far undisclosed glut of homes is about to come to light, and it’s likely to further depress values and sales.

“There’s going to be a flood [of bank-owned homes] listed for sale at some point,” John Burns, a real-estate consultant based in Irvine, California, told the Wall Street Journal this week. He expects prices to decline another 6 percent this year. The analysts at Amherst predicted an 8 percent drop, while a Sept. 11 report by Barclays forecasted a further 13 percent drop, saying the worst of the crash is “decidedly underway,” with increased foreclosures sapping “the strength of the recovery in all but the most optimistic of scenarios.”

One cause of the problem, the Journal says, is unintended fallout from “well-meaning efforts to keep families in their homes.” Foreclosures have been stalled by state moratoriums, as well as by lenders and servicers who are using the time to determine if troubled borrowers are eligible for loan modifications.

“We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running” for modifications or other alternatives to foreclosing, a Bank of America Corp. spokeswoman told the Journal, adding that government pressure to stem foreclosures had reduced their foreclosure sales to “abnormally low” levels.

But as many proposed modifications result in higher monthly payments or other terms the borrowers don’t like, more potential foreclosures are getting held up in court, too. That’s what happened to Debra and Arthur Scriven of Columbia, South Carolina, who told the Journal that Citigroup had attempted to foreclose on them 15 months ago. Since then, the lender offered a modification they felt was unfair, and their situation has stalled as they await a date for a hearing in foreclosure court.

But evidence is mounting that even when modifications are successfully written, the likelihood of a borrower defaulting again – and heading for foreclosure again – is alarmingly high. That’s because even a significant reduction in interest or principal can’t save a homeowner who’s underwater or overleveraged. Modifications have made “not much” of a difference in the shadow inventory, the Amherst analysts’ report said. “And many of these borrowers would default later, if they remain in a negative equity position,” they added.

Banks, too, are contributing to the shadow inventory problem. Fearful of the added costs of acquiring foreclosure properties and trying to sell them, many banks have simply declined to foreclose on some of their most non-performing borrowers. According to a report by LPS Applied Statistics, banks hadn’t even begun the foreclosure process on 1.2 million properties that are 90 days or more past due. In July, 217,000 mortgages that hadn’t seen a payment in a year still weren’t being foreclosed on – a number that’s more than doubled since last year.

Lenders have also scaled back their bidding at the public auctions and trustee sales that usually precede a bank foreclosure. That’s letting outside investors pick up the properties at a deep discount: According to the research firm ForeclosureRadar.com, 19 percent of homes sold in August in California trustee sales went to investors and not lenders – a 500 percent increase in the past year.

What this all means, the Amherst analysts say, is that the shadow inventory will soon eclipse the economy’s recent sunny outlook.

“The favorable seasonals will disappear over the coming months, and the reality of a 7 million-unit housing overhang is likely to set in,” they said

Over and over last week at 5Star I heard about the administrations goal of 500,000 HAMP loan modifications by Nov. 1 2009. The Administration has requested loan servicers to ramp up loan modifications such to reach 500,000 trial loan modifications by November 1, 2009. This would more than double the number of trial modifications started in the first five months of the program.

Sean O’toole of Foreclosureradar.com wrote a great post about this subject:

In my last post Waiting to catch a wave? Surge of REO’s unlikely, I speculated that foreclosures had dropped primarily because of U.S. Treasury Secretary Henry Paulson’s announcment to seek troubled asset relief for banks. The result being that banks are incentivized not to foreclose thanks to mark-to-model accounting changes, and an implied promise that the Fed or taxpayers will take bad loans off their hands at a premium if necessary.

This topic, and shadow inventory, which I also recently posted about, have been hot topics in the blogosphere and in the news. Many have predicted a wave of foreclosures is coming, while others are predicting that foreclosures are being held off the market to manipulate home prices. If you read my recent posts you know I have a different take. A few days ago, Diana Olick of CNBC did what I hoped someone would do and put the question directly to Bank of America. They essentially said that foreclosures had been delayed by the Making Home Affordable program, and would likely increase soon.

Despite it being hard to take banks at their word right now, I do think it is likely that the Making Home Affordable program, and specifically the Home Affordable Modification Program (HAMP) component of that program are playing a significant role in the delay of foreclosure sales. We actually pointed to some evidence of it in our July California Foreclosure Report, where we noted that many scheduled foreclosure sales were being postponed due to lender requests — likely because of this program.

So is it possible that foreclosure sales have simply been “HAMPered”? While I certainly think HAMP has played a role in delaying foreclosures, I don’t believe it is the full story. HAMP was not announced until February 2009 and details were not out until March yet we saw foreclosure sales drop dramatically just days after the Paul announcement last September. A commenter on my blog suggested the foreclosure drop in September was due to Fannie and Freddie being put into conservatorship and implementing moratoriums, rather than the Paulson announcment. That too is a great point. But we saw across the board drops in foreclosures, including for loans that clearly weren’t owned or guaranteed by Fannie or Freddie, so it too is an insufficient answer in and of itself.

The reality is that there are a lot of moving parts, and while its hard to do more than speculate about the specifics, the bigger picture remains clear. As a society we don’t have the political will to foreclose on everyone who isn’t paying their mortgage, and whether by implementing foreclosure moratoriums at Fannie and Freddie, announcing troubled asset relief, or pushing new loan modification programs we will continue to see the government intervene to keep foreclosures down.

Near term I believe this will help put a floor under housing prices and provide some sense of stability. Longer term I believe the government interventions to date fail to adequately deal with the negative equity problem and that they have simply kicked the can down the road leaving us with foreclosure problems for years to come.

According to a survey conducted by Harris Interactive on behalf of Zillow.com, 18% of prospective first-time homebuyers said extending the credit from Dec. 1, 2009 to Nov. 30, 2010 would be the “primary influence” in their decision to purchase a home. An additional 25% said it would be a “significant influence,” 27% said it would have “some influence,” and 31% said it would have “no influence.” Zillow projects 1.86m homebuyers stand to take advantage of the program if it is extended, and if all potential buyers took the full tax credit, extending the program could cost $14.86bn. Zillow.com chief economist Stan Humphries said of all homebuyers expected under the 12-month extension through 2010, only one in five homebuyers will enter the market specifically because of the extended tax credit. In other words, 334,000 mortgages will open because of the tax credit extension. “While 334,000 may seem like a small number relative to the total number of homebuye
rs who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year,” Humphries said.